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Africa not making the most of its gas reserves

19th February 2018

By: Anine Kilian

Contributing Editor Online

     

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Only 8% to 10% of Africa’s known gas reserves are being prioritised, despite the fact that gas reserves on the continent are abundant, Catalyst Capital managing partner Adero Okudo said on Monday.

Speaking at the Africa Gas Forum, in Johannesburg, she said there were only two crossborder pipelines operational in Africa.

“Natural gas is a growing part of the global energy mix and is an increasingly lighter source of energy on the continent. African gas is not going anywhere anytime soon, despite competing policy direction to limit greenhouse-gas emissions within the energy sector,” she noted.

Okudo pointed out that out of 55 African countries, 22 had proven gas reserves, highlighting that demand for gas in Africa continues to grow and has more than doubled since 2000.

In the face of growing demand, Okudo noted that less than 10% of Africa’s gas reserves were monetised.

“There is a major infrastructure-finance related gap within Africa’s gas sector and fundamental finance-related issues that must be addressed if we are to bridge this gap successfully and accelerate gas-to-power programmes in Africa,” she said.

She noted that there were prominent issues with the current project financing models and that there were extremely long lead times associated with arranging project finance for African gas projects.

“The period between project conception and financial close can take between three and 18 years, sometimes longer, incurring significant additional costs,” Okudo stated.

She added that, within current project financing models, project sponsors and government utilities were exposed to uncomfortable levels of risk, which made it especially difficult to reach financial close on time.

“If Africa is to unlock the additional capital to finance its ambitious energy sector, it is essential that new business models emerge adequately and proportionately, covering all related project risks.”

Already, she said, there were business model innovations taking place within the energy space.

Another challenge that prevented capital flow in the energy sector is that many African utilities are bankrupt.

“It is time for us to be very honest about this, because when we sign power purchase agreements with cash-strapped utilities, we are postponing the inevitable,” Okudo said.

She noted that governments must implement measures to help utilities become commercial again, which may involve raising tariffs.

From a political perspective, she said, it was not an easy decision to make, but politicians must sell this to the populations that they serve and implement the tough but necessary measures to provide the financial help needed by utilities.

She added that there had been significant pushback from governments about the high tariffs demanded by independent power producers, which had resulted in the increased popularity of the competitive tendering process across the continent.

Competitive tendering drives tariffs down but can only succeed in a transparent environment, she said.

“Unfortunately, corruption plagues many of Africa’s energy sectors, which is also making it difficult for projects to reach financial close affordably and quickly. There are various sectoral reforms related to financing within the gas sector that are required if we are to realise our ambitious energy expansion plans,” she said.

Edited by Creamer Media Reporter

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